Aligning Business Functions Pays Off

Recent study outlines best practices to ensure a world-class procurement function.

One size does not fit all when it comes to aligning your corporate plan, according to Chris Sawchuk, procurement practice leader at Atlanta-based The Hackett Group.

When aligning businesses, each business within the company needs to understand where others are coming from. "You have to be open and you have to be able to speak in their language -- align and understand their issues and also understand that if you have multiple businesses to serve, the objectives may vary significantly," says Sawchuk. "You can't go with a one-size-fits-all solution."

For world-class procurement organizations, understanding how to align the business, among other best practices, helps them spend less.

Indeed, according to Hackett's latest analysis, the leading procurement organizations now spend 25% less on procurement operations than typical companies. The improved effectiveness also enables these companies to drive reductions in direct and indirect spend equal to more than 10 times the cost gap -- generating $23 million per billion in annualized savings that typical companies don't see.

So how did they get so smart?

"Most companies try to focus on cutting direct spending," says Sawchuk. "But not only are world-class companies simply better at it than their peers, they also focus heavily on the challenge of reducing all their indirect spending areas."

When it comes to best practices, Hackett's study of procurement indicates the following characteristics of world-class companies:

Cross-Functional Partnering: World-class procurement organizations are three times more likely than typical companies to rely on cross-functional cooperation to develop their supplier base and achieve common goals.

Complexity Reduction: World-class procurement organizations rely on 78% fewer suppliers than typical companies.

Technology Enablement: World-class procurement executives ensure that their organizations leverage technology to increase efficiency and effectiveness.

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